A news service for the people of Michigan from the Mackinac Center for Public Policy

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Right-to-Work States Have Higher Incomes

When adjusted for cost-of-living

A constant claim by opponents of right-to-work, whether it be from the AFL-CIO, state Democratic legislators or the president, is that income is lower in right-to-work states. But these naysayers are blinded to a paycheck reality: the cost of living.

Having a larger paycheck doesn’t matter much if you can’t purchase as much with it. Adjusting for per-capita personal income — a standard measure of a state’s wealth — the difference between right-to-work and non-right-to-work states disappears.

Consider Connecticut, the state with the highest per-capita personal income. A dollar just doesn’t buy as much in Connecticut as it does in Michigan.

To highlight how disparate the cost-of-living can be, I had a friend explore a megastore outside of Hartford to look at prices for some common consumer goods. I had another friend scan prices on the same goods in Ann Arbor, a city roughly the same size as Hartford. In every single instance, the price of goods was more expensive in Connecticut.

On top of the added cost of goods, Connecticut levies a 6.35 percent sales tax compared to Michigan’s 6 percent sales tax.

A look at state average prices for other items shows a similar result. According to GasBuddy.com, on Jan. 18, 2013, a gallon of gas costs $3.658 in Connecticut and $3.306 in Michigan. (Connecticut’s price includes a 6.125 cent higher excise tax than Michigan’s price.)

A typical home in Connecticut costs $334,000. The Michigan statewide average is $110,633.

In other words, a dollar gets you more in Michigan.

In fact, when adjusting for the cost-of-living, people in right-to-work states have higher incomes than in non-right-to-work states. To calculate this adjusted per-capita personal income, I used a state-by-state cost of living index available from political scientists Dr. William Berry, Dr. Richard Fording and Dr. Russell Hanson. Their index values adjust for cost-of-living in every state from 1960 to 2007.

When converting the personal income figures for all 50 states to the value of Michigan dollars in 2000, right-to-work states have 4.1 percent higher per-capita personal incomes than non-right-to-work states. And they have 14.0 percent higher PCPI than Michigan.

Adjusting to cost-of-living also changes the lists of states with the highest and lowest incomes. Natural-resources rich Wyoming becomes the second-wealthiest state and Virginia, Florida and Texas make it to the top 10. Of the 22 right-to-work states that existed in 2007, only three were in the the bottom 15 — Mississippi, Utah and Idaho.

The bigger bang-for-your-buck makes all the difference in real consumer choices.

It’s understandable that this hasn’t sunk into the common understanding. It was only in 2003 that right-to-work states overcame non-right-to-work states in per-capita personal income. And even then there is a wide difference among right-to-work states, meaning that there are plenty of right-to-work states with lower average incomes than some non-right-to-work states and vice versa.

In addition to higher incomes, right-to-work states also added more jobs and have lower unemployment. Since 2001, right-to-work states added a net 1.7 million jobs to their payrolls — this while non-right-to-work states lost 2.1 million jobs. In addition, the unemployment rate in right-to-work states is a full percentage point lower than non-right-to-work states. Even during a tough decade, right-to-work states improved while non-right-to-work states did not.

Given the stronger economies, it’s not surprising that right-to-work states attract people from non-right-to-work states. There’s a lot of moving in and moving out of a state in any one period of time, but in just the past two years a net 400,000 people moved from non-right-to-work to right-to-work states. That’s like the entire city of Cleveland packing up and heading to greener pastures.

Those high-income states tend to be the states that shed the most people. New York, Illinois, New Jersey and Connecticut top the list. One explanation may be that, like the high-paying union jobs in Michigan, the state may have some good work — if you can get it. Workers tend to find opportunity elsewhere.

Right-to-work states have been gaining people and gaining income. And when adjusting for cost-of-living, these states also have higher incomes.

In this premiere episode of EconPop, Andrew discusses the economics of Academy Award winner Dallas Buyers Club. Subjects include public health and safety regulations, crony capitalism and the role of regulatory capture, the emergence of black and grey markets, and commercial exchange as a means for increased social tolerance.

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